You might be wondering why some legal documents are called 'Agreements' while others are called 'Deeds', and which you should be using for your property-related transactions.

This article clarifies the specific applications, implications, and legal distinctions between deeds and agreements in the context of New Zealand real estate transactions. Whether you're buying, selling, leasing, or developing property, understanding these differences is crucial in ensuring that your transactions are not only effective, but also legally binding.

‍Requirements for a Property Agreement

In the context of New Zealand property, agreements (also referred to as 'contracts') are legally binding arrangements between two or more parties where there is a mutual exchange of value. As with all agreements, there must be:

• Offer and acceptance;
• An intention to be legally bound; and
• Consideration – that is, the promise or obligation must be part of a bargain between the parties, and something of value is given in return for the promise, often in the form of a counter-promise or money.

An agreement for the sale and purchase of property needs sufficient certainty as to the parties, property, price, and any other agreed terms or conditions. Agreements form the basis of most real estate transactions in New Zealand with the most common 'form' of agreement being the ADLS/REINZ Agreement for Sale and Purchase of Real Estate.

As a general rule, agreements can be either oral or written. However, if someone is selling land (legally called a 'disposition'), section 25 of the Property Law Act 2007 provides that the agreement is not enforceable unless it is in writing and signed by both parties.

‍Requirements for a Property Deed

A deed, historically referred to as ‘a document under seal' (due to the practice of wax embossing the document), is a legal document that contains a binding promise or commitment. More often than not, this promise concerns the passing or affirming of an interest, right, or property. Specifically, for property, section 9 of the Property Law Act requires that a deed must be:

• In writing;
• Signed by the party being bound by it;
• The signing party’s signature must be witnessed; and
• The deed must be delivered to the other party (this can be completed electronically nowadays).

If a deed does not comply with the above requirements, it may be ineffective and have no legal effect, so it's crucial to get it right.

‍Common Types of Property Related Deeds

There are several deeds which may be applicable to a property-related transaction depending on the nature of the interest, such as:

Deed of acknowledgement of debt;

Deed of lease;

Deed of assignment;

Deed of surrender;

Deed of termination; and

Deed of variation.

What are the main Differences between a Deed and an Agreement

The need for consideration in agreements versus deeds is a vital distinction. Agreements require a form of consideration to be legally binding, whereas deeds do not; the act of proper execution and delivery underscores the commitment of the person to be bound by the deed, making consideration unnecessary.

Additionally, one of the fundamental differences lies in how each is executed. As mentioned earlier, deeds require certain formalities, such as being written, signed, witnessed, and clearly marked as a deed to reflect its intent. In contrast, agreements may not necessitate such stringent formalities and can sometimes be verbal or implied, depending on the situation.

Why Choose a Deed Over an Agreement?

1. Transfer of Property

Deeds: Used for the transfer of legal title in property when there is no sale, such as in the case of gifting property or transferring it into a trust.

Agreements: Employed in scenarios where property is bought or sold; these are typically detailed agreements (such as the REINZ/ADLS Agreement) which will outline terms, conditions, price, and other obligations which impact the transfer of property.

2. Settlement of Disputes

Deeds: Settlement deeds may be used to resolve disputes without the need for consideration, binding parties to specific terms to avoid litigation.

Agreements: Less common in dispute settlements without some form of mutual concession or payment.

3. Creation of Rights or Obligations

Deeds: Can create obligations or confer rights that are intended to last indefinitely, such as perpetual covenants on land use.

Agreements: Typically create temporary or conditional rights based on the continued performance of the contractual terms.

Ensuring Legal Precision in Property Transactions

Understanding whether a deed or an agreement should be used is essential for avoiding legal headaches. Despite the general rules outlined in this article, the answer to a problem might depend on the particular facts. If you need specialist advice from property experts, get in touch with the team at NZ Legal today.